Car owners are struggling with their auto loans

A recent study by TransUnion points to a potentially worrying trend in car loan Market – Late payment rates are on the rise. Approximately 3.5% of customers with auto loans are now behind on their payments.

 

A high rate of late payments may indicate that families are struggling with debtEspecially considering that meeting car loan payments is a high priority for many families. If you’re struggling to meet all of your debt payments, you should consider paying off your most expensive debt first — and for most people, that means credit cards.

 

Approximately 3.5% of auto loans are in arrears

 

A recent TransUnion study found that as of the second quarter of 2022, 3.34% of auto loans were more than 30 days in arrears, and 1.43% were more than 60 days delinquent. This is the highest rate in five years, and a significant rise over the past two years.

 

TransUnion has suggested a number of reasons for this rise. First, they point out that there has likely been a backlog of late payments due to the pandemic. Many people who may have defaulted on their auto loans during the pandemic didn’t because of government relief, stimulus programs, or auto loan providers offering temporary help to their customers.

 

Second, although the number of delinquent auto loans is at a five-year high, the total number of auto loans has declined since 2018. This is partly due to a limited supply during and immediately after the pandemic, which means many customers have struggled. Even find a car for financing. It also has to do with the high cost of new vehicles—the average cost of a new vehicle is over $48,000, which is a record high.

 

Car loans are also more expensive because of the higher interest rates. Last month, the weighted average price of auto loans across all loan types rose 2.8 percentage points to 10.6%. People with lower credit scores are likely to be the hardest hit by these price increases. In October, a high-risk borrower, with a credit score of less than 580, saw an average rate of 18.2% on a new car loan and 21.8% on a used car loan.

 

In short: Many people who might have defaulted on their auto loans during the pandemic, but were paid off by stimulus payments, now seem to be doing just that. At the same time, the total number of auto loans is decreasing. Both factors together mean that the late payment rate is an all-time high.

 

Should I prioritize my car loan?

 

The TransUnion study also uncovered some interesting data on how consumers prioritize their payments. The study found that most people consider their monthly car loan payment one of their most important financial obligations — right behind mortgage payments, and far more important than credit card payments.

 

And that makes sense. auto loans Repayments are tied to a tangible asset – a car – that you actually use. In addition, the rising cost of cars over the past year means that many people are actually in a positive loan-to-value position: that is, their car is actually worth more than the loan they took out to buy it. These two factors explain why paying off a car loan is a high priority in many households.

 

Consumers should beware of prioritizing unsecured debt over a car loan. If you’re having trouble staying on top of your auto loan, your lender may be able to offer flexibility in your payments, so you should reach out to them before missing out on a payment. If you miss a payment, your lender will likely impose a penalty, eventually repossessing the car if the loan defaults.

 

As with all types of debt, falling behind on your payments can negatively affect credit scores, so it’s important to budget properly for servicing your borrowing obligations.